Christmas GAAP

Don’t know about you, but I like listening to Christmas music. Religious, traditional classics, or even Mariah Carey, it doesn’t matter.

Sometimes it seems as if some of the songs were written for accountants and auditors. Yes, buried deep in the lyrics are accounting and auditing standards.

Here’s an example. For all those corporate execs who have been manipulating financial statements, here’s a warning from Santa Claus is Coming to Town:

He’s making a listAnd checking it twice;Gonna find out Who’s naughty and niceSanta Claus is coming to townHe sees you when you’re sleepingHe knows when you’re awakeHe knows if you’ve been bad or goodSo be good for goodness sake!

I’m sure that if a large firm audit partner has let a client skate away from honest financial statements, there will be a lump of coal in his stocking this year. Santa is the accounting cop that the Securities and Exchange Commission (SEC) should be. I nominate Santa for the head of the SEC Enforcement Division.

The purpose of this post is to write about Generally Accepted Accounting Principles (GAAP) for Christmas accounting. These are rules for preparing financial statements based on the principle that it is better to give than receive.

In North America, a common question at this time of year is when to open gifts, Christmas eve or day. We’ve done it both ways in my family, but this year we’re waiting for some time during the day.

How will you account for the gifts? I expose the following standards:

1. Revenue is a function of what you give away.
2. Expense is a function of what is received.
3. You are in the the black of you give more than you receive.

A North American tradition is to exchange gifts. Exchanging gifts doesn’t really count under this proposed standard. You get points only for giving gifts that aren’t expected. You lose points if you outsource.

On the balance sheet, assets and liabilities are reversed.

4. Assets are the gifts given that remain to be consumed.
5. Liabilities are the gifts received, whether consumed or not.
6. It is good if equity is positive.

Assets are to be valued at fair value, naturally.

If your P/L statement shows red this year (excess of expense over revenue), then now is the time to start planning for next year.